Drop in oil sales adds to Iran's woes

June 4, 1980

By Leslie KeithSpecial to The Christian Science Monitor

Since last November, when the hostage crisis catapulted Iran's Abolhassan Bani-Sadr from semi-obscurity on the Revolutionary Council to the position of economy minister and then President, he has had the habit of shaking his head when talking of Iran's economic situation.

"Bad," he would say. "Very bad."

That assessment has scarcely improved in recent days with reports that Iran's crucial international oil sales have dropped sharply in the past few months.

Indeed, Oil Minister Ali Akbar Moinfar confirmed this indirectly when he reported that average oil sales per day between April 21 and May 22 were 800,000 barrels, considerably below Iran's top capacity.

But recently, as prospects of economic sanctions by the United States and its allies in Europe became more of a reality, President Bani-Sadr has not been speaking so gloomily. This is regarded as an attempt to keep the country's already low morale from sinking even lower.

President Bani-Sadr has spoken of recent improvements in Iran's agriculture, an increase in investment by the (nationalized) banks, and new activity in the factories. Fresh business in the construction industry, he says, has led once again to cement shortages, although cement production is up.

Nonetheless, because of the decline in oil sales, there is concern in Tehran about the budget recently passed by the Revolutionary Council. It calls for $38 .5 billion in expenditures, of which two-thirds is to be spent on raising the salaries of government employees and one-third on development.

The drop in oil income, however, may mean an interim or emergency budget will have to be drafted, with expenditures trimmed. This is especially likely since the Japanese stopped buying about 400,000 barrels of Iranian oil per day in April.

Meanwhile, Iranian leaders have not taken the threat of Western sanctions lightly. They have made a number of hurried economic deals with East-bloc countries to counter the effects of the European and American economic blockade. Iran in the past has imported some 85 percent of its needs from the US and Europe.

Shojauddin Fattahi, undersecretary for foreign trade in the Ministry of Commerce, has signed trade deals with East- bloc nations, giving the impression Iran has swung to the left.

But just prior to the European sanctions, Mr. Fattahi explained why he was scribbling his signature so rapidly on trade protocols with countries such as Poland, Czechoslovakia, and Hungary.

The East-bloc countries, which provided only about 5 percent of Iran's imports of $16-17 billion in the past (during the Shah's regime) now are going to do Iran a favor.

If they cannot provide all of Iran's needs from their own manufactures, they will act as middlemen, taking an appropriate percentage for their labors.

Ayatollah Khomeini has spoken of "Satan" (his term for the US) and the West in the same breath. He has no love for the communists either, but has not hesitated to make a deal with one "devil" to get the goods he needs from another.

Iran's total imports were down to $12 billion in the year following the revolution -- or about $10.2 billion worth of goods, by Mr. Fattahi's figures. This would give the communist bloc a lot of middleman business to deal with.

But trade embargoes are not the only kind of economic sanctions that can be imposed on Iran. Mr. Fattahi also saw the possibility of a boycott of shipping and a refusal by European banks to deal with Iranian accounts.

Ali Reza Nobari, governor of the Central Bank of Iran, does not believe that the European banks would freeze Iran's accounts in European banks. They amount to about $4.5 billion, or less than 30 percent of the total foreign exchange reserves Mr. Nobari claims Iran holds in foreign banks.

The Europeans presumably would hesitate to freeze Iran's accounts because of the psychological effect this would have on other oil-producing states that have huge deposits in Europe's banks.

However, even if they do freeze Iran's accounts, he said, this country still has more than 30 percent of its reserves in banks outside the EC countries.

This amount, Mr. Nobari boasts, is more than the reserves of some countries with twice Iran's population, and will allow Iran to meet its commitments for a year or more.

A third means of imposing economic sanctions, as Mr. Fattahi explained, was to prevent European and American shipping companies from transporting goods to Iran.

The Iranians now claim they will buy their own ships and carry goods into their ports themselves.

In so saying, they apparently are ignoring the military means at the disposal of the United States to prevent any kind of shipping at all from reaching Iranian shores.

A few days before the Europeans decided to go ahead with their sanctions, reports in the Iranian news media claimed US helicopters in the Gulf had dropped a foamy material on the water off the Iranian island of Lavan, but outside Iranian territorial waters. It produced a fire that continued for hours.